The Rs 500 crore Credit Enhancement Fund, announced by Finance Minister Arun Jaitley in the Budget, is likely to begin operations by December.
The IIFCL-anchored fund will help raise credit rating of bonds floated by infrastructure companies and facilitate investments from long-term investors.
Besides India Infrastructure Finance Company (IIFCL), the government is considering roping in 2-3 banks, including SBI and PNB for the fund.
At the same time some multilateral funding agencies like ADB and the private sector funding arm of the World Bank, IFC, have been approached for partnership in the initiative.
According to sources, the fund will be operational by the end of the year and the intention is to have a broader shareholding in it as infrastructure firms find it difficult to raise adequate funds at competitive rates which are needed for projects with long gestation.
The proposed venture is expected to be registered as the Alternate Investment Fund (AIF) under Sebi.
Companies issued Rs 4.13 lakh crore of bonds in 2014-15, according to a report by the Reserve Bank. The central bank is in favour of a separate regulatory framework for providing credit enhancement by non-banking finance companies to bolster bond ratings.
In his budget speech, Jaitley had proposed that LIC will set up a dedicated fund to provide credit enhancement to infrastructure projects.
However, LIC could not anchor the proposed company because of regulatory issues.